It was a tough week for commodities in general – especially the Ags – with the major CME grains all moving significantly lower W/W while US currency value continued to charge northward.
ICE futures for March delivery lost 153 points W/W while trading a tight 209 point range that was entirely south of last week’s 60.76 settlement. Dec 15 gave up 141 points W/W, settling at 63.04.
The latest WASDE report showed little surprise with respect to the US balance sheet. C/O was projected 100K bales higher M/M at 4.7M.The world balance sheet, it seems, will continue to add bales to the projected C/O each month, setting a new record each time it does so. World C/O is now projected closer to 109M bales than to 108M and the world S/U ratio is quickly approaching 100%.
Weekly US export figures indicate that demand is improving with MY highs set this week for both net sales and shipments. The US is a little over 83% committed against the USDA’s 10M bales export projection and shipments this week were very close to meeting the pace required to ship 10M bales by July 31.But yarn values continue to move lower and the latest US textile import data paints a bleak picture of fiber share. The data show an increase in total (including manmade) textile imports while also showing cotton textile imports off nearly 3% Y/Y. Other data suggest that money pocketed by the American consumer from energy savings is not being invested into denim.
Supply could be troubling traders as well. Although we expect world aggregate production to move lower as the MY wears on, the most recent data continue to suggest that US production may be a bit higher than the USDA’s 16.08M bale projection. The same data sources had previously suggested total US production near 15.8M – 15.9M bales.
The overall weekly technical analysis continues to suggest either consolidation or lower price movement. The latest commitments of traders data show that entities with the most analysts continue to be net writers of options, which suggests an expectation of further range bound trading over the near-term.
Looking ahead to next week, the holiday-shortened trading period will likely feature strong US export sales, and, if shipments continue to pick up steam, ICE futures could very well finish the week on a positive note.
Looking ahead to the new crop, we do expect a pre-planting rally to occur, but the securing of US acreage will be greatly enhanced if the rally (should it occur) coincides with insurance base price discovery periods.
We continue to encourage producers to be ready to either sell rallies into the mid 70s, or hedge via well placed puts. With world stocks what they are, it seems unlikely that merchants will get aggressive on the basis for forward contracting, but decreasing acreage and tight domestic supplies could force their hands in some growths. Stay in touch with your local buyer and keep your farm numbers handy!
Louis W Rose IV, PhD has worked with cotton as a producer, consultant, analyst and trader. Rose holds degrees in Education, Agriculture, Plant Science and Business (MBA) from AR St Univ, OK St Univ and the Univ of Memphis, respectively. He has held positions with Aon Reinsurance and Cargill Cotton. Rose currently provides analytic services for various clients and media outlets and is the co-founder of Risk Analytics, LLC, producers of The Rose Report, which he authors. For more info on The Rose Report or analytic services, please visit: www.rosecottonreport.com